India allows foreigners to invest in domestic mutual funds

In separate statements, the Reserve Bank of India and the capital markets regulator Securities and Exchange Board of India, said that non-resident investors who met SEBI's know-your-customer requirements would also be allowed to invest in debt schemes run by mutual funds which were targeted at the infrastructure space.

SEBI said that Qualified Foreign Investors (QFIs) can buy equity or debt fund units in the primary market, but would not be allowed to trade in the secondary market.

QFIs will also be allowed to buy another $3 billion worth of debt schemes, which invest in bonds of tenure of at least 5 years in the infrastructure sector.

If the cumulative QFI investment reaches $8 billion in equity schemes or $2.5 billion in debt funds, SEBI would auction the remaining limit to foreign investors.

However, the QFI ceiling on debt funds will be within the overall ceiling of $25 billion set by the Reserve Bank of India earlier for foreign investments in corporate bonds issued by infrastructure companies.

Permitting foreign investors into the domestic mutual fund market was part of the budget proposals for 2010-11.

But allowing mutual funds to accept overseas money into debt schemes was the result of a meeting top between top industrialists and Finance Minister Pranab Mukjherjee.

"The government accepted this recommendation and held a series of discussions with the regulators to give QFIs access to mutual fund debt schemes investing in infrastructure," said the ministry.

"The QFI scheme will make it easier for overseas investors to participate in the infrastructure sector projects in India, and therefore would provide an additional source of overseas long term debt funding," it added.

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